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Immorally obtained principal increases investors' risk preference
Chuqian Chen1, Jiaxin Chen2, Guibing He2
1Department of Social Work and Social Administration, the University of Hong Kong, Pokfulam, Hong Kong SAR, P.R. China.
Plos One
|April 4, 2017
Summary
Investors take more risks with illicitly earned money, driven by guilt. This guilt reduces the perceived value of tainted capital, increasing risk-taking behavior in financial markets.
Area of Science:
- Behavioral Economics
- Moral Psychology
- Financial Markets
Background:
- Capital from immoral sources is prevalent in financial markets.
- The impact of principal source morality on investment decisions is not well understood.
Purpose of the Study:
- To investigate how the morality of a principal's source influences investors' risk preferences.
- To explore the mediating role of guilt in this relationship.
Main Methods:
- Three studies were conducted, manipulating the source of principal (immoral vs. neutral).
- Investor risk preferences were measured.
- Guilt was assessed as a potential mediator.
Main Results:
- Investors exhibited higher risk-seeking behavior when their principal was earned immorally.
- Guilt fully mediated the effect of principal source morality on risk preferences.
- Reduced subjective value of morally flawed principal led to increased risk preference.
Conclusions:
- Morality-related features of capital significantly influence investment behavior.
- Findings support mental accounting theory and highlight potential market stability threats from "grey principal".
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